– In Part I we discussed the weak and divided outcomes from the 11th WTO Ministerial Conference.

 

Institutional Concerns

Several institutional factors explain the weak and divided outcomes from the 11th WTO Ministerial Conference.

The WTO’s consensus approach to decision-making means that nothing is decided until all Members agree. Each of its 164 (as of July 2016) members has one vote. This governance structure slows down decision-making. It also allows all Members to have a voice in the rules of the global trading system.

However, a cultural divide between the developed and developing/emerging country members of the WTO makes it increasingly difficult to arrive at consensus. Nor is there agreement among developed countries. The Trump Administration’s “America First” policy runs counter to the multilateral policy of many states. At the 11th WTO Ministerial Conference, the two powerhouses of the WTO, the United States and the European Union, expressed their frustration with the organization but for different reasons.

The Presidential Declaration issued at the start of the Ministerial Conference provides an example of the cultural divide in action. The Declaration was the initiative of the Governments of Argentina (host of the Ministerial Conference), Brazil, Paraguay, and Uruguay.  It re-affirmed the importance of the WTO and its “objectives of improving people’s standard of living, achieving full employment and increasing the production of and trade in goods and services”. The Declaration confirmed the importance of preserving and strengthening the multilateral trading system to promote rules‑based and equitable trade. It also underscored the need for a joint effort to consolidate economic growth, reduce inequality, promote gender equality, help to create decent and quality employment, and other goals that accord with the United Nations 2030 Agenda for Sustainable Development to eradicate poverty and hunger.

The Declaration’s language contrasts with the frustrations voiced by the European Union (EU) and the United States in their opening statements to the Ministerial. The EU declared its priority objective to be “preserving and strengthening the rules-based multilateral system”. The EU’s statement went on to highlight the inability of the Members to discuss issues of concern and agree on a suitable way forward on the “open questions and unfinished business”. From the Ministerial, the EU wanted three things: 1) concrete decisions on rules-based agreements, such as fisheries subsidies; 2) decisions on a clear path forward for such issues as e-commerce and SMEs; and 3) a clearer sense of the most effective ways for the WTO to support development.

The frustrations of the United States, on the other hand, focused on other institutional aspects. High among them is the WTO dispute settlement mechanism. The U.S. has not liked a series of the WTO decisions which, it believes, allow countries to obtain non-negotiated concessions from the U.S. The Trump Administration is in fact blocking the selection of WTO Appellate Body judges, threatening the ability of the organization to function. The U.S. also prioritized enforcement of trade rules and notifications by WTO Members. It wants a focus on negotiating rules to new challenges, such as the State-Owned Enterprises of China.

The U.S. also clearly voiced its frustration regarding the system of self-proclaimed developing country status by WTO Members. WTO rules incorporate “special and differential treatment” for developing country members. At the same time, there is no definition of a “developing country”. The status is accorded to Members based on self-selection. This is a recipe for inertia.

Brazil, China, and India have self-selected as developing countries and therefore eligible to receive the same special and differential treatment as Sri Lanka, Saint Lucia, and Swaziland. Brazil, China, and India, rightly, point out that they share many of the same challenges as developing countries, notably high rates of poverty. They do not believe they should be placed in the same category as the rich developed countries. The consensus approach to decision-making stymies attempts to find a workable solution. The result of this impasse is that the negotiated rules on special and differential treatment are ignored and not given any teeth, to the detriment of the poorest countries. Developing countries feel ignored and disrespected, further contributing to the cultural divide. They are reluctant to enter into negotiations on the new issues while, in their opinion, the “development agenda” and long-standing issues such as fairer rules on agricultural trade remain unaddressed.

What is left are plurilateral initiatives, such as the ones announced in Buenos Aires, that attract the support of a subset of WTO Members. Alternatively, negotiations take place among a small group of select states completely outside of the WTO, such as the Trade in Services Agreement (TiSA) talks among 23 WTO members.

Plurilateral agreements have always been permitted within the WTO. However, the organization’s commitment to a rules-based multilateral trading system makes this approach less than optimal. The smaller and poorer countries will only have the option of joining, or not, an agreement whose rules they did not help to negotiate. An effective WTO is supposed to provide a multilateral platform where the rules of trade are openly negotiated by all its members. This approach provides the most legitimate means by which the WTO can meet its stated vision of setting trade rules that serve the interests of both rich and poor countries.